Income Tax Appellate Tribunal - Mumbai
Income Tax Officer vs Barodawala Properties Ltd. on 26 December, 2001
Equivalent citations: [2002]83ITD467(MUM)
ORDER
Jaidev, A.M.
1. This appeal of the Revenue is directed against CIT(A)'s order dt. 13th Aug., 1998. The following ground of appeal is raised :
"On the facts and circumstances of the case and in law the learned CIT(A) erred in directing to allow society maintenance charges out of house property income without appreciating the fact that such charges are not covered under the meaning of term 'Annual charge' as appearing in Clause (iv) of Section 24(1) of the Act."
2. The house properties belonging to the assessee are given on lease to the banks. These properties are situated in the co-operative societies and the assessee is required to pay society's maintenance charges which were claimed as deduction by the assessee. The reason for such claim was that the premises are exclusively us,ed for the purpose of earning rental income and the society's maintenance charges paid are allowable deduction from "income from house properties" under Section 24(1) of the IT Act. The AO observed that the assessee had already been allowed deduction @ 1/5th of the property income for repairs and maintenance, hence, no other deduction like society's maintenance charges is allowable under Section 24 of the IT Act. In the first appeal, the learned CIT(A) allowed the assessee's claim by observing that such claim was allowed by the Department for the preceding years. The Revenue is aggrieved by the CIT(A)'s order.
3. The learned Departmental Representative relied on the assessment order and also on the decision of Delhi High Court in the case of CIT v. KG. Gupta & Sons (1984) 149 ITR 253 (Del) and contended that society's maintenance charge is not an. allowable deduction either under Section 23 or under Section 24 of the IT Act.
3.1. On the other hand, the learned counsel of the assessee contended that under Section 23(1)(b) net annual letting value (ALV) has to be taken into consideration. In other words, the learned counsel means that from the gross rent received, the society's maintenance charge has to be deducted to arrive at the correct or net ALV. The learned counsel contended that the decision of Delhi High Court in the case of H.G. Gupta & Sons (supra), relied on by the learned Departmental Representative, is not applicable as it pertains to Section 24 and hence it is not material. He stated that the assessee's claim for deduction of the impugned expenditure is under Section 23. The learned counsel referred to the lease agreement dt. 24th May, 1999 (copy of which is available at pp. 73 to 79 of the paper book) and contended that the gross rent of Rs. 24,800 was split up into Rs. 14,880 towards rent and Rs. 9,920 towards service charges. The learned counsel also referred to the agreement dt. 12th Nov., 1976. (copy available at p. 47 of the paper book) wherein there is no bifurcation of the gross rent given. The learned counsel stated that even where no bifurcation of the gross rent was given expressly, there was an understanding that a portion of the rent will be utilised towards payment of society's maintenance charges, etc. The learned counsel further contended that it is not a case of specific deduction as provided by the statute but it is a case based on theory of real income principle. It was stated that as per the agreement or as per the understanding the assessee has to part with a portion of the gross rent towards society's maintenance charges, etc. Reliance was placed by the learned counsel on the following decisions :
(1) Varma Family Trust v. ITO (1984) 7 ITD 392 (Bom);
(2) Neelam Cable Mfg. Co. v. Asstt. CIT (1997) 59 TTJ (Del) 474 : (1997) 63 ITD 1 (Del); (3) Sir Sobha Singh & Sons (P) Ltd. v. IAC (1996) 55 TTJ (Del) 699;
(4) Bagree Estates (P) Ltd. Dy. CIT ITA No. 1661 (Cal) of 1990 : 1996 Case Digest/ITAT p. 207; (5) ITO v. Vijay Kumar Bawri (1984) 19 TTJ (Gau) 562; and (6) ITO v. Smt. Durga Devi Bawri (1984) 19 TTJ (Gau) 386.
4. We have given a careful consideration to the rival submissions in the light of material made available to us. Admittedly the AO has taken into consideration the actual rent received under Section 23(1)(b) of the Act. The case of the assessee is that real income theory has to be applied in which event the actual rent received minus the society maintenance charges should be taken as usual rent. In this regard, the assessee has relied upon the decision of the Tribunal, Bombay Bench, in the case of Verma Family Trust cited (supra) wherein the Bench followed the decision of Tribunal in the case of Addl. ITO v. J.M. Shah (1983) 4 ITD 303 (Bom). It may be noted that in the case of J.M. Shah (cited supra) the Tribunal held that the expenditure incurred for earning commission income should be deducted and only balance amount should be treated as salary income under Section 15 of the Act. Learned JM has passed separate but concurring judgment wherein it was held that while computing property income under Section 23(1)(b) of the Act the outgoings for earning the rental income have to be deducted. Learned JM has also referred to the decision of the Hon'ble Bombay High Court in the case of CIT v. Khandelwal Mining and Ores (P) Ltd. Upon careful consideration of the matter, we are of the view that the decision in the case of Verma Family Trust was impliedly overruled by the Hon'ble Bombay High Court in the following decisions :
(i) CIT v. J.K. Investors (Bombay) Ltd (1999) 240 ITR 723 (Mad); and
(ii) CIT v. Gopal Krishna Suri and Ors. in IT Ref. 52 of 93 and batch dt. 13th Oct., 2000.
4.1. In the case of J.K. Investors (supra), the Hon'ble Bombay High Court observed that in a case where Section 23(1)(b) is applied, there is no question of taking notional interest on interest-free deposit received by the assessee because the word 'receivable' used in Section 23(1)(b) denotes payment of actual annual rent to the assessee. Similarly in the case of Gopal Krishna Suri and Ors. (cited supra) the assessee in their capacity of development officers of LIC of India, and in order to earn bonus certain expenditure was incurred by them. It was contended that the expenditure incurred to earn incentive bonus is necessary outgo and hence the net incentive bonus should be taken into consideration as forming part of salary, by applying the real income principle. This was not accepted by the Hon'ble Bombay High Court. Their Lordships observed that the entire incentive bonus is assessable as salary income under Section 15 of the Act and in the absence of any provision to claim deduction towards expenditure incurred for earning incentive bonus, deduction is not permissible against the salary income. Their Lordships also observed that under Section 16 of the Act the standard deduction is prescribed and thus, no other deduction is permissible. The decision in the case of J.M. Shah cited supra is thus overruled by the Hon'ble Bombay High Court (cited supra). It may also be noticed that in the case of J.K. Investors (P) Ltd. (cited supra) the Hon'ble Bombay High Court having held that the actual rent received should be taken into consideration under Section 23(1)(b) of the Act, the question of allowing any deduction under Section 23(1)(b) does not arise. If notional interest is not to be taken into consideration under Section 23(1)(b), society maintenance charges cannot be deducted under that section, by extending the same logic. In the case of CIT v. H.G. Gupta & Sons (supra), the Hon'ble Delhi High Court categorically held that under Section 24 of the Act stamp duty charges borne by the lessor are not allowable as deduction in computing the income under the head 'house property'. The Court observed that Section 24 of the Act uses the word 'namely' which shows that the heads of expenditure whereof deduction can be claimed in the computation of income from house property are exhaustive; if a particular type of expenditure is not specifically proved to be deductible, deduction thereof cannot be claimed from out of the annual value. Thus, their Lordships concluded that neither Section 23 nor Section 24 provides for the deduction of the expenses incurred towards stamp duty.
4.2. The decisions of Gauhat Bench of Tribunal in Vijay Kumar Bawri and Smt. Durga Devi Bawri's (supra), relied on by the learned counsel of the assessee, are distinguishable in facts. In those cases the assessee's claim was that rents realised by him from his tenants were inclusive of electricity charges and, therefore, payments for electricity were to be excluded while determining the annual letting value of the property. It was held by the learned Members that the claim was allowable only if it is established as a fact by leading the cogent evidence that there was such an agreement of the assessee with his tenants. It was further held in the aforecited cases that the salary of Chowkidar is not deductible, as it is neither mentioned in Section 23 nor in Section 24, while computing the assessee's income from property. The society's maintenance charges normally include the salary of Chowkidar also and hence the decisions of Gauhati Bench of Tribunal, relied upon by the learned counsel of the assessee in fact go against the assessee. The decision of Delhi Bench "A" in the case of Neelam Cable Mfg. Co. (supra), relied on by the learned counsel of the assessee, is also distinguishable in facts. In that case, the gross rent received by the assessee also included the security service charges whereas in the present case the gross rent received by the assessee included society's maintenance charges. For the repairs and maintenance of the building separate deduction @ 1/5th of the property income has already been allowed by the AO. Therefore, no further deduction for the repairs or maintenance charges can be allowed. The learned counsel of the assessee has relied on the decision of Delhi Bench of the Tribunal in the case of Sir Sobha Singh & Sons (P) Ltd. We find that in that case the issue was not decided on merits and it was held that though deductions on account of salaries paid to watchmen, sweepers, Mails, pump operators and manager are not admissible under the existing provisions, yet the same were allowed to maintain consistency as they were allowed in the past. Hence, this decision also does not come to the rescue of the assessee. The decision in the case of Bagri Estates (P) Ltd. (supra), though apparently is in favour of the assessee, yet we find that in this case also the issue was not decided on merits but the appeal was allowed to maintain consistency as the claim was allowed in the past.
4.3. Under these circumstances, we prefer to follow the decision of the Delhi High Court and in the light of the ratio laid, down by the Hon'ble Bombay High Court in the case of Gopal Krishna Suii and J.K. Investors, we hold that the society's maintenance charges payable by the assessee in respect of leased property is not allowable as deduction either under Section 23 or under Section 24 of the Act. We, therefore, set aside the order of the learned CIT(A) on this issue and restore that of the AO. The appeal of the Revenue succeeds.
5. In the result, the appeal of the Revenue stands allowed.